He says approaches to the Commonwealth to underwrite the construction of a $800 million gas pipeline from Katherine to Nhulunbuy was based on the original agreement that the Territory would supply 300 petajoules of gas to the refinery for 10 years.

Chief Minister Adam Giles last week announced the Territory Government would provide 195 petajoules of gas over 15 years.

Mr Gray says the project may still be viable, but the Federal Government will not be certain of this until all due diligence has been completed.

"We are awaiting the due diligence work that is currently being done by the Export Finance Insurance Corporation to determine just what kind of loan guarantee could be put in place to support the financing of a pipeline from Katherine to Gove," he said.

"The only guarantee is that we will have a proper commercial process in place. Both sides of politics have agreed to that.

"What we have agreed to is certainty in that process, and that is why the uncertainty created on Friday by the Chief Minister's unparalleled move has cause such a shock to the system."

Mr Gray accused the Territory Government of failing to consider the future of the East Farnham Land town of Nhulunbuy.

The town, of about 4,000 people, is largely dependent on the operations of Pacific Aluminium, a subsidiary of mining giant Rio Tinto.

Gray says change creates 'unnecessary risk'

Mr Gray says Mr Giles has created an unnecessary risk to the town by reneging on the original deal, which was negotiated by former chief minister Terry Mills.

"To expect some kind of knee-jerk, politically inspired solution to the business difficulties of Nhulunbuy is simply unreasonable," he said.

Prior to the original gas supply agreement, Rio Tinto had signalled the Gove refinery might have to be closed because of the high cost of operating it on expensive liquid fuels.

Mr Mills says reducing the amount of gas offered to the Gove refinery has changed the basis for all negotiations on the gas pipeline.

In a statement, he says the original Cabinet decision to approve the 300 petajoules supply offer was made after a detailed assessment of risk and opportunity.

He says the $3 billion risk cited by Mr Giles in changing the offer was a "worst-case scenario" and at least 13 years away.

Mr Mills says the original offer gave the Federal Government the security it needed to consider underwriting the construction of the pipeline to deliver the gas to Gove.